In what is being called a first for Brazilian future flows, American International Group (AIG) reportedly provided a cross-currency and interest rate swap to a yen transaction for Unibanco. Underwritten by Nomura Securities, the 25 billion (US$229 million) bond was backed by dollar-denominated diversified payment rights (DPRs). While neither Moody's Investors Service, Standard & Poor's nor FitchRatings named the swap provider in their reports, all cited the AAA'-rated counterparty of the swap as key to the transaction's creditworthiness. The agencies rated the deal Baa1', BBB-', and BBB', respectively.

But AIG was not the only one in on the swap action. Sources said Nomura is acting as a backstop guarantor for the swap and that its exposure is, in turn, backed by the International Finance Corporation, a AAA' rated entity. "There are three parties here," said a source close to the deal.

According to the IFC, in the event of a default the multilateral would cover "up to 83% of the mark to market payment in case it's owed to Nomura." Officials from the organization added: "That payment is capped up to 30% of the notional amount [of the swap] of any particular time."

The swap agreement is a two-part invention. In addition to the trust switching U.S. dollar-denominated cash flows into Japanese yen to make the bond payments, the vehicle pays a floating interest rate under the swap, while AIG pays a fixed rate. The trust can partially or fully unwind the swap in specified circumstances.

Aside from the cascade of swap parties, the deal was a fairly conventional DPR. It is the fourth series off this trust, established in the Cayman Islands. Unibanco generates 6% of all the payment orders executed through the Brazilian banking system.

Also underpinning the transaction is an initially steep overcollateralization. Set at 80x quarterly debt service, the OC shrinks to 12.5x with the onset of amortization. The bond has a coupon of 3.55%, according to a statement from Unibanco. It was unclear whether the deal priced at par. Nomura could not be reached for comment.

Issued as a private placement, the transaction closed Nov. 14 and was bought by Japanese institutional investors, sources said.

Six correspondent banks have agreed to pledge their receivables for this transaction: American Express Bank, Bank of America, Citibank, Deutsche Bank Trust Company Americas, JPMorgan Chase Bank and The Bank of New York.

This Unibanco deal marks the first time a Brazilian future flows deal has been issued in a currency other than the greenback-denominated collateral, sources said. Currency mismatches cropped up in a number of Argentine deals when the country ditched its dollar peg and pesified the domestic economy. As there was no swap to fix the asymmetry between assets in devalued pesos and bond payments in dollars, it was only a matter of time for most of these transactions to crash.

Swap talk is now swirling around Mexico's market, with players eager for the kind of length that would open the door to a MBS issuance in the U.S.

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